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March 23, 2006

The Political Facts of Life

Chris Cavey

Certainly by this point in time, if you are like me, you are ready to pay any amount for electricity if the demagoguing and finger pointing would just stop. I’m sure the citizens of Maryland would gladly triple their rates just to hear something else on the news so they won’t have to listen to another elected official blame everyone else for the situation.

In the real world there are some facts that rarely change; (1) big companies make profit for stockholders, and that’s why they are big companies; (2) politicians are not economists and most want power, but not the type that comes from utility companies; (3) the media wants the public to blame someone…always; and (4) the public is uneducated – and under-educated – in most complicated issues and doesn’t understand there is “no free lunch” – or electricity.

That said let’s think about these facts one at a time.

BGE, the utility powerhouse that serves the Baltimore region, is a big company. They have stockholders who expect a profit for their investment. They deal in the real world and pay real world salaries to their employees, and real world dividends to their investments. BGE and other utility companies are in many portfolios – unions, conservative investors, banks, possibly even the State of Maryland Pension Plan. Why would we citizens want BGE to fail, take a dramatic loss, relocate or lose any money?

The real world answer is they won’t.

BGE made a deal in 1999 and have planned – like any smart business – their investment path and corporate goals. They can spend a million dollars to lobby whomever they want. They could take out TV, radio and newsprint ads for the entire next year, making everyone in the past two legislatures look stupid and not even come close to denting their advertising budget.

Next, politicians are not economists. Most are end users of people. They develop power by your transfer of confidence, your respect and your vote.

In 1999 Speaker of The House of Delegates Michael Busch (D., Anne Arundel) as a delegate voted for the deregulation. The bill was processed by the Environmental Matters Committee, which had Ron Gunns as chairman. However, most House members had no clue of the content of this bill, or the outcome that lay in the future, but Speaker Busch’s position in the House at the time was such that he was likely privy to the details of the measure and how they would effect and affect the public in the future.

On the Senate side, the bill was co-sponsored by President Mike Miller (D., PG) and Sen. Thomas Bromwell (D., Baltimore Co.). In 1999 they ruled the Senate and normally got what they wanted. Perhaps this is a reason former Senator Bromwell is now under federal indictment awaiting trial on another matter. Who knows? We do know that neither is – or was – an economist. Senator Miller is an attorney and Mr. Bromwell was a bar owner/small business-owner.

All three of these politicians understand political power and the art of the re-election game. What a wonderful accomplishment to brag about for the 2002 election…you could just hear: “I saved you 6.5% from the rates of the monster company. I understand the citizens of Maryland and you don’t want to pay an extra $30 per month for electric power. You want rates at a discount.”

Well, the worm has turned.

Let’s fast forward to today. There is another big industry that is making big money on this problem. It’s the media. The blame game sells newspapers, radio and TV ads. Just think about the time and money spent covering this story. There is enough “hot air” being expelled to make up the energy cost differential if we could channel it into the power plants. We could have saved thousands of trees in newsprint alone.

The media should see the need to educate the public; save energy; and talk about real world economics.

A friend of mine, who is an economist, wrote to me: “The quickest way to depress rates is to take the full rate increase. Citizens would start to conserve significantly or pay the price. This conservation will bring down the final cost below the current estimate. From there supply would increase relative to demand creating downward pressure on price; and competition would surface once we were paying real world rates.”

You won’t read that in the newspaper, or hear it from your local politician who wants re-election.

The bottom line is this. Our governor has taken a leadership position and is working to fix a problem he didn’t create. Remember, he was in Congress in 1999.

Senate President Miller and Speaker Busch are trying to make us forget they had any knowledge of this or the fact that they were in leadership positions in 1999. The legislature is worried about how they will be perceived at the polls in the fall. BGE is waiting to charge real world prices and make promised profits for their stockholders.

Most citizens just want to take their whipping and get it over with. The true pain is in the waiting and the agonizing over how bad that pain will hurt. It’s like when we were kids. Mom smacked us with the fly swatter. It hurt. But within a few minutes it was over and we had learned a lesson.

Too bad we can’t send Mom to Annapolis – just for the afternoon!

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